SINGAPORE, Sept. 6 (Reuters) – At least eight supertankers holding mostly fuel oil are anchored in south Malaysian waters, up from seven previously, as a shortage of tanks spurs a move to floating storage and excess shipping capacity keeps rates low.

More trading firms, including Swiss trader Mercuria Energy Trading and Southern Petrochemical Co. Ltd., an affiliate of China's Sinopec Group, are venturing into the residual fuels market to capitalize on potentially firm trade margins.

They are leasing Very Large Crude Carriers (VLCCs) to store and blend fuel oil due to a lack of long-term storage terminals in Singapore.

All existing landed tanks are occupied by long-term leases, despite the jump in commercial capacity to 5.5 million cubic meters from 2.95 million cu m.

Strengthening fundamentals in the Asian fuel oil market, thanks to buoyant bunker demand in Asia and the Middle East, as well as lower Western arbitrage arrivals in October, will offer attractive trading opportunities.

Excess shipping capacity, after the global recession sapped growth, has also kept rates attractive.

The cost of leasing a VLCC on a time-charter basis starts from about $30,000-$35,000 a day now, about half the rates of $60,000-$70,000 per day at the start of the year, ship broking sources said.

Floating storage leases – usually lasting three months to a year – also offer trading firms more flexibility.

Carrying fuel oil and anchored off the southern Malaysian port of Tanjung Pelepas are the Titan Chios, chartered by Lukoil, the Nanfang Sanhao, owned by Southernpec, and the Titan Neptune, chartered by Strong Petrochemical, industry sources said.

Southernpec paid about $15 million for its VLCC in June and started selling bunker in Singapore on an ex-wharf or wholesale basis sometime last month.

Another vessel is the Front Lady, previously named Ticen Sun, leased by Glencore, holding fuel oil.

The Kadriah I is the only vessel located in the area storing crude, leased by Thailand's top energy firm PTT.

Vessels storing the residual fuel off Pasir Gudang, along the eastern coast of Johore, are Brilliant Jewel, leased by Vitol, and Front Highness, previously Ticen Ocean, leased by Mercuria.

The Titan Mercury, Glencore's second vessel in the area storing fuel oil, is also located off Pasir Gudang.

Earlier this year, Glencore had leased the Taurus, Titan Scorpios and Titan Neptune in southern Malaysian waters, sharing the latter with Mercuria. The Titan Chios had been chartered by both Lukoil and SK Energy, trade and shipping sources said.

The Kadriah I was also chartered by PTT then.

At that time, Vitol had also leased the Titan Gemini and the BW Nisa, both of which are now out of service. The former is under maintenance while the latter is undergoing conversion into a floating storage and offshore production unit.

The Taurus, still anchored in southern Malaysian waters, is now vacant, while a new vessel, the Sfakia, could be the latest addition to the list. But it is unclear if this ship has been leased out or what cargo it is holding.

Supplies in the Asian fuel oil market tightened between May and July, due to healthy bunker sales, strong seasonal demand from the Middle East, and lower Western arbitrage flows.

But fundamentals softened after more arbitrage cargoes arrived in August and September, causing Singapore onshore fuel oil stocks to hit an all-time high in the week ended Sept. 2.

But the market is resuming its upswing, with October arrivals expected to fall sharply, and as bunker demand remains robust.